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Chinese firms were seldom thought of being anything apart from copies of their western counterparts. The snobbish inhabitants of Silicon Valley never thought that these companies would amount to much. However, the reality has become very different.
China today has about 25% of the world’s unicorns i.e. tech startups with a valuation greater than $1 billion! This is remarkable given that China is a closed economy and the internet users face censorship and high regulation.
China is only second to the United States in terms of the number of unicorns, and some of these unicorns are galloping ahead threatening the supremacy of their western counterparts. In this article, we will understand the Chinese internet story in more detail.
Few people outside China know and use the services of these firms. It is therefore surprising to know the scale at which these companies have grown in a relatively short period.
The firm has been losing ground in the mobile internet business. However, it is effectively using mergers and acquisitions to grow inorganically. The $1.9 billion acquisition of 91 wireless is the most expensive acquisition China’s internet market has ever seen.
One peculiar thing about Chinese internet firms is that their business is limited to China. Unlike other global internet firms, their business does not cross international borders. Some of the major reasons for this are as follows:
Last year itself, the Chinese market grew by 6.2% and added 43 million users. That number is bigger than the entire population of Ukraine. These firms have a long way to tap the untapped potential of the Chinese market itself. There is no reason that they must change their business models to cater a more global audience.
Chinese companies, therefore, face negligible competition from any outside firm. A large market along with negligible competition translates into good business within China.
Instead, they are funded by the same investors who fund companies in Silicon Valley viz. venture capital and private equity firms. Therefore there is no lack of capital for these firms. This is the reason why these firms can scale up really quickly.
The big Chinese firms like Tencent and Alibaba have not been able to make much of a splash outside China. The reasons for that are as follows:
Western consumers believe that Chinese companies are mostly state owned. Hence, they believe that their personal data is at risk with such corporations. This gives Chinese firms a negative branding. Instead of leveraging their own brand name, Chinese firms have to partner up with local firms when they enter other markets.
Chinese firms do not have the wherewithal to beat global competitors like Google, Apple, and Uber. Hence, to avoid loss of money and reputation, Chinese companies stay in China.
China has disputed borders with other nations. However, a map company in China was forced to label all disputed territories as being Chinese. This is the reason Chinese companies do not want to expand to other markets. They will not be able to appease all political parties involved. Hence, the smarter thing to do is to stay in China and pledge loyalty only to one nation.
To sum it up, Chinese companies have a long way to go before they reach market saturation and then have to look to other countries to ensure that the growth story continues unabated!
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What the Current Wave of Protectionism and Populism mean for the Future of Globalization and Free Trade
February 12, 2025
